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Pivotal Corporation - MRRS Decision
Headnote
Mutual Reliance Review System for Exemptive Relief Applications -- relief granted from the requirement to reconcile to Canadian GAAP certain financial statements and MD&A included in an information circular that were prepared in accordance with US GAAP.
Applicable Ontario Rules
Rule 41-501 General Prospectus Requirements.
Rule 54-501 Prospectus Disclosure in Certain Information Circulars.
IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ALBERTA, SASKATCHEWAN, ONTARIO, QUÉBEC,
AND NEWFOUNDLAND AND LABRADOR
AND
IN THE MATTER OF
THE MUTUAL RELIANCE REVIEW SYSTEM
FOR EXEMPTIVE RELIEF APPLICATIONS
AND
IN THE MATTER OF
PIVOTAL CORPORATION
AND CHINADOTCOM CORPORATION
MRRS DECISION DOCUMENT
WHEREAS the local securities regulatory authority or regulator (the "Decision Maker") in each of Alberta, Saskatchewan, Ontario, Québec, and Newfoundland and Labrador (collectively, the "Jurisdictions") has received an application from Pivotal Corporation (the "Applicant") for a decision under the securities legislation of the Jurisdictions (the "Legislation") that the Applicant be exempt from the following requirements in connection with a management information circular (the "Circular") being prepared in connection with an upcoming extraordinary meeting of the Applicant's securityholders to consider a plan of arrangement involving the Applicant and chinadotcom corporation ("CDC"):
(a) the requirement that historical and pro forma financial statements of CDC (and various entities acquired or being acquired by CDC) (the "CDC Statements") prepared in accordance with U.S. GAAP (as defined below) be accompanied by a note to explain and quantify the effect of material differences between Canadian GAAP and U.S. GAAP that relate to measurements and provide a reconciliation of such financial statements to Canadian GAAP;
(b) the requirement that auditors' reports on the CDC Statements disclose any material differences in the form and content of such auditors' reports as compared to a Canadian auditors' report and confirming that the auditing standards applied are substantially equivalent to Canadian generally accepted auditing standards;
(c) the requirement that all management discussion and analysis ("MD&A") relating to the CDC Statements provide a restatement of those parts of the MD&A that would read differently if the MD&A were based on statements prepared in accordance with Canadian GAAP, and the requirements that the MD&A provide a cross-reference to the notes in the financial statements that reconcile the differences between U.S. GAAP and Canadian GAAP; and
(d) the requirement that all calculations done to determine whether a particular actual or probable acquisition is a "significant acquisition" under the Legislation be done using financial statements which are either prepared in accordance with Canadian GAAP or reconciled to Canadian GAAP;
(collectively, the "GAAP Reconciliation Requirements");
AND WHEREAS under the Mutual Reliance Review System for Exemptive Relief Applications (the "System"), the Ontario Securities Commission is the principal regulator for this application;
AND WHEREAS unless otherwise defined, the terms herein have the meaning set out in National Instrument 14-101 Definitions or in Québec Securities Commission Notice 14-101;
AND WHEREAS the Applicant has represented to the Decision Makers as follows:
1. The Applicant is incorporated under the Company Act (British Columbia) and is a "reporting issuer", or holds equivalent status, under the Legislation.
2. The Applicant is not in default of any of the requirements of the Legislation.
3. The common shares of the Applicant (the "Pivotal Common Shares") are listed on the Toronto Stock Exchange (the "TSX") and on the Nasdaq National Market ("Nasdaq").
4. CDC and its wholly-owned subsidiary, CDC Software Corporation ("Acquisitionco", and together with CDC and any direct or indirect subsidiary of either corporation, the "Acquisition Group"), are Cayman Island corporations.
5. The common shares of CDC (the "CDC Common Shares") are listed on Nasdaq.
6. CDC has securities currently registered under the 1934 Act and is not registered or required to be registered as an investment company under the Investment Company Act of 1940, as amended.
7. The Applicant's authorized capital consists of 200,000,000 Pivotal Common Shares and 20,000,000 preferred shares, of which 26,390,114 Pivotal Common Shares and no preferred shares were outstanding as of November 28, 2003.
8. Under an arrangement agreement dated December 6, 2003 among the Applicant, CDC and Acquisitionco, CDC is proposing to acquire all of the outstanding Pivotal Common Shares (the "Arrangement").
9. The effect of the Arrangement will be that each holder of Pivotal Common Shares (other than members of the Acquisition Group) may, subject to certain conditions, elect to receive from CDC, in exchange for the transfer to Acquisitionco of each Pivotal Common Share held, either
(a) US$2.00 in cash; or
(b) US$1.00 in cash and US$1.14 in CDC Common Shares.
10. The Applicant expects to apply in early January, 2004 for an interim order from the Supreme Court of British Columbia authorizing the Applicant to convene a meeting of its securityholders on or about February, 2004 to consider and approve the Arrangement.
11. Under the requirements of the Legislation, the Circular must, among other things, contain prospectus-level disclosure regarding CDC.
12. To provide prospectus-level disclosure regarding CDC, the following historical and pro forma financial statements must be included in the Circular (the "Circular Financial Statements"):
(a) three years of audited financial statements of
(i) CDC;
(ii) the Applicant, given its status as a significant probable acquisition by CDC;
(iii) Ross Systems Inc. ("Ross"), a company which is currently the subject of a significant probable acquisition by CDC; and
(iv) Industri-Matematik International Corp. ("IMI"), a company in which CDC acquired a controlling interest in September, 2003;
(b) the following interim unaudited financial statements:
(i) unaudited financial statements of CDC for the nine months ended September 30, 2003 and 2002;
(ii) unaudited financial statements of the Applicant for the three months ended September 30, 2003 and 2002;
(iii) unaudited financial statements of Ross for the three months ended September 30, 2003 and 2002; and
(iv) unaudited financial statements of IMI for the three months ended July 31, 2003 and 2002;
(c) a pro forma balance sheet as of September 30, 2003 showing
(i) the combination of the Applicant, CDC and IMI, and
(ii) the combination of the Applicant, CDC, IMI and Ross; and
(d) a pro forma statement of profit and loss for the nine months ended September 30, 2003 and the year ended December 31, 2002 showing
(i) the combination of the Applicant, CDC and IMI, and
(ii) the combination of the Applicant, CDC, IMI and Ross;
13. The audited Circular Financial Statements will be audited in accordance with generally accepted auditing standards in the United States of America, as supplemented by the SEC's rules on auditor independence, and the auditors' reports will identify the auditing standards used to conduct the audit and the accounting principles used to prepare the financial statements.
14. It is expected that the Pivotal Common Shares will be delisted from the TSX and Nasdaq on or shortly after the completion of the Arrangement.
AND WHEREAS under the System, this MRRS Decision Document evidences the decision of each Decision Maker (collectively, the "Decision");
AND WHEREAS each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the Decision has been met;
THE DECISION of the Decision Makers under the Legislation is that the GAAP Reconciliation Requirements shall not apply the Applicant in connection with the disclosure pertaining to CDC, including the various entities acquired or to be acquired by CDC, in the Circular, provided that:
(a) the Circular Financial Statements are either prepared in accordance with, or reconciled to, generally accepted accounting principles in the United States of America that the SEC has identified as having substantial authoritative support, as supplemented by Regulation S-X and Regulation S-B under the 1934 Act ("U.S. GAAP"); and
(b) the calculations done to determine whether an actual or probable acquisition is a "significant acquisition" under the Legislation are done using financial statements that are either prepared in accordance with, or reconciled to, U.S. GAAP.
January 16, 2004.
"Cameron McInnis"